on borrowers and getting comfortable with the risks. Atthe same time, we work collaboratively with our busi-ness development sales teams to come up with solutionsor recommendations to try to get the deal approved forfunding. We help point out credit concerns that thesales team may not have completely foreseen but needsto think about.”As an example, Sum describes a recent deal atPNC Business Credit in which the BDO was evalu-ating “Company A,” which was ultimately ownedby “Company B.” Company B also owned the mainsupplier to Company A. “Here we had a multitude ofissues to consider, including Company A’s dependencyon a supplier and whether Company A’s purchases fromCompany B were made at market prices. As under-writers, we not only have to understand the accountsreceivable and inventory collateral in our deals but alsothe industry that the company is involved in, includingcore competencies, barriers to entry and competition.”

Assessing Outside Factors

Clearly, underwriters need to look at a company from all
angles, so how do economic indexes fit into their work?
The National Association of Credit Management’s
(NACM) May report tells a story of sagging economic
enthusiasm. It cites indexes that are dropping subtly
after a brief post-election pick-up. In addition, the
Thomson Reuters/PayNet Small Business Delinquency
Index shows that delinquency has increased by 11% in
the last year.

“The job of the underwriter at MB Business Capitalis more specific to the client and transaction,” Seidensays. “Most of our borrowers are showing strengthwith better financial results. They want to expandtheir capital expenditures and add more employees.At the macro level, a small increase in delinquenciesmay help certain asset-based lenders. It can motivatemore companies to leave their traditional commerciallending environment and refinance with an asset-basedlender. Larger delinquencies would hurt the portfolio,but most asset-based transactions are well structuredfrom the start. We understand that a small increase indelinquency doesn’t necessarily foretell a bad situationdown the road.”“Our risk within a loan tends to align with the risksof the client, so we look at events and economic cyclesmore than we look at specific indexes,” Hoefler says.

“Recent focuses have involved Section 232 regardingtariffs in the name of national security as well as theeffect of the continued growth of Amazon and otheronline distributors and industry-specific cycles andevents. When we think about delinquency risk andpotential challenges for a borrower, it normally boilsdown to their liquidity position. This is something wemonitor very closely as a part of the ABL discipline.”Instead of passing off the deal when the underwritingis finished, the same person manages the account andcontinues to build the relationship with the company’smanagement team while also being on the front line ofunderstanding the risks of the deal.”At MB Business Capital, the BDOs bring in andcultivate the relationship. “Underwriting becomes theprimary point of contact upon receiving a mandateto move forward,” says Jeff Seiden, SVP and directorof ABL Underwriting. “Our work involves organizingand analyzing field exams and presenting a completewrite-up that goes to a credit committee. We confirmthe numbers and make sure the projections and cashflows make sense. After credit committee approval, wehandle the legal work and set up the transaction to thepoint where it funds. From that point, it transitions toportfolio management.”“The role of the underwriter is a unique one in thatwe have a dual responsibility,” says Joe Sum, SVP,national underwriting manager at PNC Business Credit.“Our work involves performing extensive due diligence

“Our risk within a loan tends to align with the risks of the client, so we
look at events and economic cycles more than we look at specific
indexes. Recent focuses have involved Section 232 regarding
tariffs in the name of national security as well as the effect of
the continued growth of Amazon and other online distributors
and industry-specific cycles and events. When we think about
delinquency risk and potential challenges for a borrower, it normally
boils down to their liquidity position. This is something we monitor
very closely as a part of the ABL discipline.”